North American Investment Grade CDS Index 83.23 +.69%
European Financial Sector CDS Index 161.02 bps +9.55%
Western Europe Sovereign Debt CDS Index 201.17 bps -.29%
Emerging Market CDS Index 195.48 +.72%
2-Year Swap Spread 21.0 +1 bp
TED Spread 17.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 276.0 +3 bps
China Import Iron Ore Spot $171.0/Metric Tonne unch.
Citi US Economic Surprise Index +18.90 +4.0 points
10-Year TIPS Spread 2.41% +6 bps
Overseas Futures:
Nikkei Futures: Indicating +165 open in Japan
DAX Futures: Indicating +25 open in Germany
Portfolio:
Higher: On gains in my Medical, Tech, Ag and Biotech long positions
Disclosed Trades: Added to (GOOG) long, took profits in another long
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades higher despite some equity weakness overseas, surging long-term rates, recent stock gains and rising euro sovereign debt concerns. On the positive side, Coal, Oil Service, Internet, Disk Drive, Networking, Wireless, Bank, Hospital, Homebuilding, Gaming, Education and Airline shares are especially strong, rising more than 1.5%. (XLF) is strongly outperforming again. Small-caps and cyclicals are also relatively strong. The Eurozone Investment Grade CDS Index is dropping -3.05% to 85.1 bps, which is the lowest since Nov. 23 and a big positive. The euro currency continues to trade poorly and gold is falling another -.28%. Copper is gaining +.79% and lumber is jumping +3.1%. On the negative side, Semi and Utility shares are under mild pressure. The Greece sovereign cds is climbing +3.03% to 1,062.54 bps, the Hungary sovereign cds is gaining +2.46% to 380.17 bps and the China sovereign cds is rising +2.45% to 67.45 bps. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is still near a record high. The 10-year yield is surging +14 bps to 3.47%, but is still within its recent range. The broad market continues to trade very well as it grinds higher and the bears remain unable to gain any traction on potential negative catalysts. One of my longs, (MOS), reported excellent earnings after the close yesterday and is rising +2.95%, which puts it back near its 52-week high. I still see further meaningful upside in the shares from current levels over the short/intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, short-covering, technical buying, less financial sector pessimism, more economic optimism and buyout speculation.
U.S. Companies Added 297,000 Jobs in December, ADP Says. Companies in the U.S. boosted payrolls in December by the most since records began in 2001, showing a stronger labor-market recovery at the end of last year, data from a private report showed today. Employment increased by 297,000, exceeding the highest projection in a Bloomberg News survey, after a revised 92,000 rise in November, according to figures from ADP Employer Services. The median estimate in the Bloomberg survey called for a 100,000 gain last month. Faster job growth will fuel the income gains necessary to further spur consumer spending, which accounts for about 70 percent of the economy. “The headwinds for the recovery are fading,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “Companies have been pretty cautious and they’ve accumulated a lot of spending power, and we’ve seen that in purchases of equipment and software. Now they need more workers to man the equipment.” “There is certainly a strong signal in the ADP data,” Joel Prakken, chairman of Macroeconomic Advisers LLC, which produces the figures with ADP, said in a conference call with reporters. “It has accelerated in each of the last three months and the gains that we reported this morning were widespread.” Today’s ADP report showed an increase of 27,000 workers in goods-producing industries, which includes manufacturers and construction companies. It was the biggest gain since February 2006 and the second straight rise. Service providers added 270,000 workers, the 11th straight gain and the most since record-keeping began. Employment in construction was little changed, the first time without a decline since June 2007, while factories added 23,000 jobs, ADP said. Companies employing more than 499 workers expanded their workforces by 36,000 jobs. Medium-sized businesses, with 50 to 499 employees, created 144,000 jobs and small companies increased payrolls by 117,000, ADP said. Employers in the U.S. announced plans in December to cut 32,004 jobs, the fewest since June 2000, according to Challenger, Gray & Christmas Inc. The Chicago-based outplacement company said firings were down 29 percent from December 2009.
U.S. Services Expand at Fastest Pace Since 2006. Service industries expanded in December at the fastest pace since May 2006, showing the U.S. economic recovery is picking up and broadening beyond manufacturing. The Institute for Supply Management’s non-factory index, which covers about 90 percent of the economy, rose to 57.1, exceeding the median forecast of economists surveyed by Bloomberg News, from 55 in November. “We’re coming into 2011 with some good momentum,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected the ISM index would climb to 57. “We’re going to be entering a better business climate.” The ISM non-manufacturing measures of new orders and business activity increased to the highest levels since August 2005. The group’s employment gauge fell to a three-month low, damping some of the optimism raised by the ADP report.
Portugal Pays More to Borrow in First Test of Investor Demand: Euro Credit. Portugal sold six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. The government debt agency, known as IGCP, auctioned 500 million euros ($665 million) of bills repayable in July. The yield jumped to 3.686 percent from 2.045 percent at a sale of similar maturity securities in September, with investors bidding for 2.6 times the amount offered. A year ago, the country paid just 0.592 percent to borrow for six months. “We have a long year ahead, and one auction is not going to answer any questions,” said Padhraic Garvey, a strategist at ING Groep NV in Amsterdam.
PBOC Extending Biggest Cash Crunch Since Lehman: China Credit. Borrowing costs for China’s banks will rise to the highest in more than two years in the first quarter as policy makers curb supplies of cash to fight inflation, according to a survey of bond analysts. The seven-day repurchase rate, which measures interbank funding availability, may average 2.9 percent in the first quarter, compared with 2.75 percent in the previous three months, according to the median estimate in a Bloomberg survey of eight analysts. Both levels were the highest since the third quarter of 2008, when Lehman Brothers Holdings Inc.’s bankruptcy caused global credit markets to seize up. Central bank Governor Zhou Xiaochuan’s tolerance of the funding shortage shows his determination to curb the fastest inflation in two years in a country where 150 million people live on less than $1 a day. The seven-day repo rate has doubled in the past year to 3.26 percent, as the one-week U.S. dollar Libor remained little changed at around 0.25 percent.
At Least 40% of LME Copper Shorts in March Held by One Company, Data Show. One unidentified company held a short position in copper for March delivery on the London Metal Exchange that equaled at least 40 percent of the contract’s open interest, according to bourse data. The short position, which could be a bet on price declines or a hedge against a long position elsewhere, was dated Dec. 30, according to the exchange. Open interest for March amounts to 42,856 lots (1.1 million metric tons), the most in any copper futures contract. As of the same date, one unnamed firm held 50 percent to 79 percent of LME copper stockpiles, bourse data show.
World Food Prices Jump to Record on Sugar, Oilseeds. World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt. An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008, the Rome-based UN agency said in a monthly report. The gauges for sugar and meat prices advanced to records.
Crude Oil Rises as U.S. Service Industries Expand, Companies Add Employees. Crude oil rose after reports showed that U.S. service industries expanded and companies added workers in December, signaling that fuel demand may increase in the world’s biggest oil-consuming country. Futures climbed as much as 0.8 percent after the Institute for Supply Management’s non-factory index, which covers about 90 percent of the economy, rose to 57.1.
Birinyi's Projected 322% S&P 500 Advance Beats '90s Tech Rally. Laszlo Birinyi says the U.S. stocks rally that began in March 2009 may produce bigger gains than the technology boom of the 1990s, if history is a guide. Birinyi, who was one of the first money managers to advise buying American equities as they bottomed almost 22 months ago, said yesterday that the Standard & Poor’s 500 Index may increase to 2,854 on Sept. 4, 2013, based on the average size of advances. That requires a 322 percent surge from the low of 676.53 in March 2009, beating the 302 percent rally during the bull market of October 1990 to July 1998.
Qualcomm(QCOM) Agrees to Buy Atheros(ATHR) for About $3.2 Billion. Qualcomm Inc., the world’s largest maker of mobile-phone chips, agreed to buy Atheros Communications Inc. for about $3.2 billion in cash, broadening its lineup of Wi-Fi networking technology. Atheros investors will get $45 a share, Qualcomm said today in a statement. That’s 22 percent more than Santa Clara, California-based Atheros’s closing price on Jan. 3, before reports about the purchase emerged.
Fear 'Mindless' U.S. Deficit Spending, Pimco's Gross Says. Pacific Investment Management Co.’s Bill Gross said investors should favor emerging market corporate and sovereign debt as “mindless” U.S. deficit spending may result in higher inflation, a weaker dollar and the eventual loss of America’s AAA credit rating. “The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit,” Gross wrote in a note on Pimco’s website today. “As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that ‘old normal’ norms have returned. Not likely. There will be pain aplenty.” The U.S. deficit was $150.4 billion in November, exceeding the median estimate of economists surveyed by Bloomberg News, compared with $120.3 billion in November 2009, according to a Treasury Department budget statement released last month. “All investors should fear the consequences of mindless U.S. deficit spending.” wrote Gross, a founder and co-chief investment officer at Pimco. Like a female mantis who eats the head of her mate while reproducing, policy makers are “munching on the theoretical heads of future generations, while paying no mind to the wretches that will eventually be called upon to pay the bills,” he wrote. Stimulus measures that have been designed to maintain current consumption instead of working to make America a more competitive nation in the long run will be a drag on real income growth as reflationary policies set in, Gross wrote.
Sears(SHLD), Urban Outfitters(URBN) Said to Weigh J. Crew Bids. Sears Holdings Corp. and Urban Outfitters Inc. are weighing rival bids for clothing retailer J. Crew Group Inc. in a potential challenge to TPG Capital and Leonard Green & Partners LP’s $3 billion buyout, said three people with knowledge of the matter. Sears and Urban Outfitters are studying J. Crew’s books, said the people, who asked not to be identified because the matter is private. Neither company has indicated whether it will actually counter TPG and Leonard Green’s $43.50-per-share offer, the people said. At least two other private-equity firms are also receiving confidential data on the New York-based retailer, said the people. J. Crew’s go-shop period, in which a public company solicits competing offers, expires Jan. 15 so any bid must be made before then. TPG and Leonard Green’s Nov. 23 offer for the company was 29 percent higher than J. Crew’s average closing share price in the month prior to the announcement.
Ford(F) Rises to Top of Consumer Reports Survey, Tying Toyota. Ford Motor Co. matched Toyota Motor Corp. as the most favorably viewed auto brand by U.S. consumers in a survey released today by Consumer Reports magazine. Ford has climbed 35 percentage points in the last two years, while Toyota has fallen 46 points, leaving the automakers “in a statistical dead heat” with scores of 144 and 147 respectively, the Yonkers, New York-based consumer magazine said. Ford excelled in “factors that consumers say matter most: safety, quality and value,” the magazine said in a statement.
Wall Street Journal:
As Speaker, Boehner Vows to Make 'Tough Decisions'. Ohio Republican John Boehner was elected speaker of the U.S. House of Representatives Wednesday, completing a decade-long comeback after being cast from leadership when House Republicans suffered election losses in the late-1990s.
Obama to Address Chamber on Feb. 7. In the latest example of the White House’s renewed outreach to U.S. business, President Barack Obama will address the U.S. Chamber of Commerce Feb. 7 on jobs and the economy, an administraion official said.
Starwood(HOT) Again Circles Condo Carcasses. Barry Sternlicht's Starwood Capital Group is moving to expand its investments in distressed condominiums, leveraging the experience it has gained in the 15 months since it led a group that bought the assets of the failed Corus Bank. The same group of investors that bought the $4.5 billion Corus portfolio from the Federal Deposit Insurance Corp. is now bidding on other distressed residential assets at a time when condo markets are showing signs of stabilizing in some parts of the country.
Google(GOOG) Was the Busiest Startup Acquirer of 2010. Google Inc. missed out on prized daily discounter Groupon in 2010, but it still acquired far more start-ups owned by venture capital firms than any other company last year. In fact, it’s the first time that Google has topped the annual list of most venture-backed acquisitions, according to research firm Dow Jones VentureSource.
Google(GOOG) Wins One Against Microsoft(MSFT). Google Inc. has won a key ruling in its lawsuit against the U.S. Interior Department, two months after the Web giant accused the agency of improperly favoring rival Microsoft Corp. in a contract bid to provide a new email system. Susan Braden, a federal judge in Washington, on Monday issued a preliminary injunction that prevents the Interior Department from deciding to use Microsoft's email and collaboration tools for its 88,000 employees as part of the federal government's move to Web-based software, sometimes known as cloud computing.
IMF Considers Expanded Overseer Role of Global Capital Flows. The International Monetary Fund is considering expanding its role as the overseer of global capital accounts and controls, people familiar with the plan said Wednesday. The IMF is expected to publish as soon as Wednesday a preliminary executive board review examining how the fund could be more involved in supervising capital flows between countries.
CNBC:
US Small Business CEOs in More of a Hiring Mood. U.S. small business owners are finally in a better hiring mood as they grow more confident about both the economy and their own business prospects, a survey released Wednesday showed. For the first time in three years, a majority of chief executive officers polled by small business group Vistage said they planned to add employees in 2011. The quarterly poll of 1,729 CEOs was conducted between Dec. 14 and Dec. 24. In the previous installment of the poll, conducted in September, just 46 percent of CEOs said they planned to add jobs in the next 12 months. In the December poll, 58 percent thought economic conditions had improved from a year earlier, and roughly the same percentage thought things would get better still over the next 12 months. That was a significant improvement over September's survey, which found just 40 percent thought economic conditions would improve in the coming year.
Seeing Firm Growth, Fed's Hoenig Saw 'Duty' to Dissent. The Federal Reserve's most vocal internal critic Wednesday pushed back against the U.S. central bank's effort to control a sometimes-dissonant message, saying it is the duty of those who disagree to vote their conviction. Thomas Hoenig, president of the Kansas City Fed and a known inflation hawk, said the U.S. economy is recovering remarkably well given the depth of the economic downturn, and repeated his view that the Fed's loose monetary policy risks sparking bubbles or inflation in the future. The bank's lone dissenter, who has repeatedly and openly opposed the Fed's policy of ultra-low interest rates, not only stuck to his views but also took a jab at those at the Fed who are concerned about the divergence of view on policy.
AT&T(T) Lays Out Plan for 4G Network, Devices.AT&T laid out an aggressive plan to roll out its next-generation wireless network in 2011, including a slate of devices that will include tablets and the market’s first dual-core smartphone.
Hands On With A Fake Chinese iPhone (photos). From far away, it looks pretty real -- never mind that Apple hasn't actually started selling the white iPhone 4 yet, because of some manufacturing problems. But after holding it for five seconds, and trying to use the software, you get a real sense of appreciation for the real thing. This "SciPhone" is not only a fake, but a crappy fake.
Simons' Medallion Up More Than 30% in 2010. Jim Simons’ Medallion Fund finished 2010 strongly, posting a better than 30 percent return, according to investors. This, of course, is net of a 5 percent management fee and 44 percent performance fee. The performance, however, still put it below its net return range of between 40.5 percent and 84.1 percent in each of the prior four years. Remember, for years Medallion has only been open to partners, employees and friends. Simons’ two newer public funds also posted strong performance. Renaissance Institutional Futures fund (RIFF) — introduced in October 2007 — finished up 22.7 percent after climbing just 3.8 percent last year and losing 12 percent in 2008. The Renaissance Institutional Equities fund (RIEF) fell by more than 1 percent in December 2010, and finished the year up 16.5 percent.
Seeking Alpha:
Crispin Odey Remains Optimistic on Stock Markets: Latest Commentary and Outlook. Crispin Odey, founder of hedge fund firm Odey Asset Management, is out with his latest market commentary and outlook. Back in September, he noted that equities were attractively priced but unloved. Since then, equities have rallied furiously. So, what's his latest take? See below for his outlook penned on the 30th of November:
In House, New Republican Majority Plans to Act Fast to Undo Obama's Agenda. Almost as soon as they take control of the House at noon Wednesday, Republicans will embark on a 20-day plan aimed at undoing major aspects of President Obama's agenda as they seek to take advantage of the weeks before the Senate's return and the president's State of the Union address.
Apple(AAPL) is Granted its First Liquidmetal Patent. Apple has been granted its first patent related to Liquidmetal, a space-age metal alloy. But the patent isn’t for a new iPad enclosure or iPhone antenna, as experts have predicted. Instead Apple’s Liquidmetal patent is for an internal component of a fuel cell. Apple’s new patent describes “amorphous alloy” collector plates for fuel cells, an electrochemical battery that uses hydrogen to generate electricity. Although the patent doesn’t reference the Liquidmetal trademark, the material is an amorphous alloy or “metallic glass.”
BP(BP) Shuts Down Part of Alaska Oil Field in Wake of Court Ruling. BP shut down a small portion of the Prudhoe Bay oil field last week after a judge ruled that federal regulators failed for years to get approval from the Inupiat Eskimo family that owns the land. The shutdown affects less than 1 percent of production from the nation's largest oil field, but so far it's the most visible consequence of a significant legal victory for the Native family, which has battled lawyers for the federal Bureau of Indian Affairs and BP in federal court over the oil production from its land. Federal claims court Judge Nancy Firestone ruled this fall that the Oenga family is owed millions in unpaid rent because the BIA improperly allowed BP to tap three offshore oil deposits from the family's allotment on the northern edge of the vast Prudhoe oil field.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
The HD Room:
Netflix(NFLX) Button Coming to Remote Controls. Several hardware manufacturers will begin building in a red Netflix button on their remote controls. The button will allow viewers to access Netflix's online movie rental service and rental queue with a single button click. Blu-ray Disc players, Internet-connected televisions and other related media hardware devices such as set-top boxes will include the Netflix button. Sony, Sharp and Toshiba have unveiled plans to include the button on their Internet-connected televisions in 2011, while Roku, Boxee and Iomega are adding it to their set-top box remotes. Other hardware manufacturers that will add the Netflix buttons to remotes include Panasonic, Memorex, Dynex (Best Buy's brand) and Haier. The first remotes with the Netflix buttons are due in stores this spring.
Politico:
John Boehner Elected Speaker of the House. Capping a two-decade House career, Rep. John Boehner was elected at the 61st speaker of the House, becoming the first Ohio Republican to hold the post in nearly 80 years. The vote was 241-173, with Boehner handily beating Rep. Nancy Pelosi (D-Calif.), who had served as speaker for the last four years. As he walked up the center aisle of the House chamber to receive the gavel from Pelosi, Boehner — well known for being emotional — teared up and wiped his eyes.
Rockefeller Takes Aim at EPA. Firing the first salvo in what is expected to be a top energy issue in the new Congress, Sen. John Rockefeller said Wednesday that he’s raring to go in his controversial bid to handcuff the Environmental Protection Agency’s climate regulations for two years. The West Virginia Democrat told POLITICO that he’ll soon introduce the same piece of legislation he tried unsuccessfully to get a vote on throughout 2010.
Reuters:
EU Targets Senior Creditors at Ailing Banks. All bondholders should be forced to take losses in an ailing bank under draft European Union proposals which aim to avoid taxpayers again having to fund bailouts in the next crisis. The EU's executive Commission is due to publish the consultation paper as soon as this week to shape its crisis management legislative proposals later in the year. The paper obtained by Reuters said writing down a bank's stock and subordinated debt may not be enough at times and that national resolution authorities will need "additional writeoff" powers. The EU executive proposes a tiered model beginning with writedowns of equity and subordinated debt, with senior debt next in line.
Glu Mobile(GLUU) to Develop Games for Tablets With Nvidia(NVDA) Chips. Mobile game developer Glu Mobile Inc (GLUU) said it would partner with graphics chip giant Nvidia Corp (NVDA) to develop games for tablets that run Google's (GOOG) Android, sending its shares up as much as 18 percent. Glu is working with Nvidia to develop games that will use the advanced capabilities of Tegra processors, it said in a statement. Tegra chips help speed up Internet browsing and accelerates graphics on mobile devices. Nvidia has a partnership with Google and expects tablet-like devices that use Tegra chips and run on the Android operating system to be released early next year.
Telegraph:
Brazil Pledges to Stop US 'Melting the Dollar'.Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar".
Les Echos:
France is seeking to cut spending by a further 30 billion euros in 2012 to reduce the country's budget deficit to 4.6%, citing Budget Minister Francois Baroin.
Liberation:
The euro currency could disappear unless additional steps are taken to ensure its long-term stability, Nobel economics laureate Joseph Stiglitz said. Stability funds established by euro-region governments provide only "temporary relief for small countries," Stiglitz said. The fiscal situation of larger countries, including Spain and Italy, remains "precarious," he said, adding that further weakening will intensify pressure on the common currency. Without "appropriate policies and balanced institutions," such as a solidarity fund for long-term stability, the euro may not survive, Stiglitz said.
Macau Daily Times:
Sands China Appeals to Court on Plots 7 and 8. Local gaming operator Sands China has already submitted an appeal to the courts over the Government’s decision to reject its application for Cotai plots 7 and 8.
Vatan:
Gap Inc.(GPS), Nike(NKE) and Adidas AG are giving more orders to Turkish firms and reducing production in China. The extra orders mean Turkish textile companies may export $8.8 billion of products this year compared with $6.6 billion in 2010, said Ismail Gulle, head of Instanbul-based textile association Itkib. China has become more expensive because of an increase in input prices, Gulle said.
US Dollar Trades Near Week High Before U.S. Data on Jobs, Services. The euro fell for a third day against the dollar on concern that Europe’s debt crisis will persist, making it difficult for governments to raise funds. The region’s currency declined for a second day versus the yen before Portugal sells six-month bills and Poland sells two- year and five-year bonds today. Declines in asking prices for Irish homes accelerated in the fourth quarter of 2010, property website Daft.ie reported today. The dollar traded near a one- week high against the yen before a U.S. report that may show services industries grew at the fastest pace in 4 1/2 years, providing more evidence the world’s largest economy is improving.
Portugal First to Test 2011 Demand With Bill Sale: Euro Credit. Portugal will sell six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. “People will be looking to see if yields are higher, and they might well be,” said Phyllis Reed, head of bond research at Kleinwort Benson Private Bank in London. “The big question in the market for Portugal is, is it next in terms of a bailout? It may be that, sooner or later, that is what is going to happen.” The government debt agency, known as IGCP, plans to auction 500 million euros ($665 million) of bills repayable in July. Portugal sold six-month bills on Sept. 1 at an average yield of 2.045 percent, with investors bidding for 2.4 times the amount of securities offered. A year ago, the country paid just 0.592 percent to borrow for six months.
Europe Crisis Drives Banks to Sell Bonds Before Sovereigns: Credit Markets. Deutsche Bank AG, Rabobank Nederland and two other European banks rushed to tap the U.S. corporate bond market today in a race against countries beset by a sovereign debt crisis that need to raise $1.1 trillion this year. Deutsche Bank, Germany’s biggest bank, issued $1 billion of five-year notes in the Frankfurt-based lender’s first dollar- denominated sale since March, data compiled by Bloomberg show. General Electric Co.’s finance arm sold $6 billion of bonds as issuance reached $21.2 billion, the most since September 2009. Competition will be “tough” between European governments and the region’s banks as deficit-plagued countries refinance maturing debt, said John Stopford, the head of fixed-income at Investec Asset Management Ltd. in London. For financial companies, relative yields on dollar-denominated debt are at the tightest since May, while spreads on bonds in euros are about the widest since July, Bank of America Merrill Lynch index data show. “It will be a challenge to raise funds at least in an early part of this year,” said Stopford, who helps oversee about $65 billion. As redemptions come due in the first half of the year for Portugal and Spain, “more clarification on how and in what form support might be necessary would be a constructive thing,” he said.
Coal Prices May Reach $300 a Ton on Queensland Floods, Post Says. Solid Energy New Zealand Ltd., New Zealand’s government-owned miner, expects contract coal prices to rise to about $300 a ton in the three months to June because of floods in Australia’s Queensland state, the Dominion Post reported, citing Chief Executive Officer Don Elder. The floods will have a greater impact than those in Queensland in 2008, which caused spot coking coal prices to jump to more than $300 a ton from $125 a ton, Elder said, according to the Wellington-based newspaper. Queensland exports about half of the world’s coking coal for Asian steel mills, the Post said.
Australian Floods May Take Significant Economic Toll. The worst flooding in half a century in Australia’s northern state of Queensland may have a “significant impact” on the nation’s economy as exports are interrupted, said central bank board member Donald McGauchie. “On what can be seen at the moment, there’s very substantial damage to infrastructure,” McGauchie, who is also chairman of Nufarm Ltd., Australia’s largest supplier of farm chemicals, said in a telephone interview today. “The consequences to export income could be quite substantial.”
China Stocks' Best Forecaster Predicts Slump in 2011. China’s stocks may slump for a second year as the central bank raises interest rates to tame inflation, according to Zhang Kun, the strategist at Guotai Junan Securities Co. who correctly predicted last year’s drop. “There will be no gains again,” Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said in an interview. “Inflation is the biggest risk. The government will keep tightening.” The Shanghai Composite fell 14 percent in 2010 to 2808.08, making it the worst performer among benchmark indexes in the world’s 10 biggest markets, according to data compiled by Bloomberg. Premier Wen Jiabao’s government ordered banks to set aside more reserves six times and boosted rates twice since October to tame inflation and curb asset bubbles after record gains in lending and property prices. The central bank will keep increasing borrowing costs to cap inflation at around 4 percent this year after it reached a 28-month high of 5.1 percent in November, Zhang said. China is lagging behind counterparts across Asia that took steps earlier to raise borrowing costs from global recession lows. India has lifted its benchmark rate six times since March, while Malaysia increased it three times, also starting in March. Taiwan began increasing rates in June and South Korea in July. “Inflation isn’t an issue that’s going to be easily tackled,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which oversees the equivalent of $2.21 billion. “We’ll see tighter monetary policies with new loan growth to be cut more than the market anticipates,” Guotai Junan’s Zhang said, predicting the government will boost rates twice more and cut the quota for new bank loans from 2010’s 7.5 trillion yuan. “Liquidity will be a problem for the market.”
China May Alter Reserve Ratios Monthly, Newspaper Says. China’s central bank will examine lending and capital levels at domestic banks each month to determine reserve requirements for individual lenders, the China Securities Journal reported. Banks may face higher requirements if their capital adequacy ratios fall below mandated levels, the newspaper said, citing an unidentified person close to the People’s Bank of China. “This will enable the central bank to target abnormal lending and absorb liquidity more effectively,” said Deng Ting, a Beijing-based analyst at Guodu Securities Co. “The PBOC found itself incapable of doing much after new loans exceeded last year’s quota. They hope to change that.” Any capital adequacy shortfall would be multiplied by a so- called stability factor to calculate differentiated reserve requirements, the report said. Affected banks would be required to adjust lending immediately, the Securities Journal reported.
Wall Street Journal:
Cut The Deficits - Now by Yves Mersch. Even John Maynard Keynes knew that prolonged stabilization measures might themselves turn into a source of instability. Although it is common in medicine to provide strong, inebriating drugs to ease the pain in the case of an emergency, no serious health professional would extend such measures for longer than necessary, given the risks of addiction and long-term damage to vital organs. In economics, for whatever reason, this seems to be different. The global economy has gone through three years of bold macroeconomic stabilization. But the current attempts to reduce deficit spending and stop governmental ad hoc measures are rather timid. It would be misleading, however, to think we can go on like this for ever. Sooner rather than later, we have to return to a path of stability.
Panel Deals Shell Setback in the Arctic. Royal Dutch Shell was dealt a new setback in its plans to drill offshore in the arctic, after environmentalists successfully challenged a decision to grant the company air-quality permits. Shell has invested $3.5 billion in an exploration program in Alaska's Beaufort and Chukchi seas, but has yet to drill. The company's plans have been dogged by legal challenges and regulatory obstacles.
Cisco(CSCO) Joins Race to Combine TV, Web Video. Networking Giant Will Unveil Initiative That Includes a Hybrid Set-Top Box. Cisco Systems Inc. is entering the race to combine Internet video and conventional television, people familiar with the matter said, aiming to help cable operators fend off emerging rivals like Apple Inc. and Google Inc.
Microsoft(MSFT) Alliance With Intel(INTC) Shows Age. The technology industry's most lucrative partnership—the long-running alliance between Microsoft Corp. and Intel Corp.—is coming to a day of reckoning. Sales of tablets, smartphones and televisions using rival technologies are taking off, pushing the two technology giants to go their separate ways. The clearest sign that their interests are diverging: Microsoft on Wednesday is expected to unveil a future version of the company's flagship Windows operating system that runs on microprocessors designed by Intel rival ARM Holdings PLC(ARMH), according to people familiar with its plans. Microsoft still plans to make versions of Windows that also run on Intel chips, but the company's ARM plans amount to a huge bet on a chip technology that has become the de facto standard for smartphones, tablets and other mobile products.
US Bank Regulator Seeks to Recover $2.5 Billion in Lawsuits. The Federal Deposit Insurance Corp. said Tuesday it is seeking to recover $2.5 billion by suing former executives of failed U.S. banks. The agency said it has authorized professional liability lawsuits against 109 such officials, who weren't named by the FDIC.
Why Did We Nationalize AIG(AIG)? by Hank GreenbergThere's still no good answer why AIG got such different treatment than Goldman Sachs(GS). It's not too late to undo some of the damage. The recently released list of businesses bailed out by the Federal Reserve was not as surprising to me as it was to many members of the general public. What is clear from the list is that the notion of equal protection ensconced in the Constitution was missing in September 2008. Rather than trying to spread both the burden and benefit of the bailout evenly among members of the U.S. financial services industry, key decision makers at the Fed and Treasury arbitrarily determined which companies should become wards of the federal government (AIG) and which should be permitted to live on.
The States Versus ObamaCare. As new state attorneys general take office in the coming weeks, I expect an increase in the number of states challenging the law in court. This week begins the inauguration and swearing-in ceremonies for newly elected officials all over the country. One thing many of us have in common is that the voters rewarded us for our outspoken opposition to ObamaCare. The electorate's decisive rejection of the Obama administration's policies reveals a pervasive concern over the federal government's disregard of fundamental aspects of our nation's Constitution. No legislation in our history alters the balance of power between Washington and the states so much as ObamaCare does. The tactics used to pass the health-care bill gave all Americans ample warning of the constitutional wrongdoing that was about to occur.
Euro-Zone Inflation Threatens Two-Speed Economy. Euro-zone inflation jumped past the European Central Bank's target for the first time in more than two years, threatening the ECB's coveted anti-inflation credibility as it continues to take aggressive measures to stem the region's fiscal crisis. Annual inflation across the currency bloc was 2.2% in December, according to the European Union's statistics office, Eurostat, up from 1.9% in November and the highest since October 2008.
At Banks, New Fees Replacing Old Levies. Banks, in an attempt to wring more revenue out of customer accounts, are conjuring up new ways to raise fees on basic products like debit cards, cash machines and checking accounts. As regulation curtailing financial institutions from levying certain charges on consumers has mounted over the past year, banks have had to dream up new fees to replace those now trimmed by laws. Credit-card users have experienced new inactivity fees and foreign-exchange charges, while checking accounts have gotten hit with new monthly maintenance fees. Banks are considering additional fees on credit cards and checking accounts. But they also are looking at new ways to make money on cash machines and especially debit cards as regulators pinch the cards' conventional revenue streams.
A Chinese Stealth Challenge? The first clear pictures of what appears to be a Chinese stealth fighter prototype have been published online, highlighting China's military buildup just days before U.S. Defense Secretary Robert Gates heads to Bejiing to try to repair defense ties.
Facebook Deal Spurs Inquiry. SEC Launches Review of 1960s-Era Disclosure Regulations for Private Firms. The Securities and Exchange Commission has begun examining whether disclosure rules for privately held firms need to be rewritten as a result of recent deals allowing investors to buy shares in Internet companies such as Facebook Inc. and Twitter Inc., according to people familiar with the situation.
CNBC:
Australia Dalrymple Port Rebuilds Coal Stocks; Macarthur Warns. The major Australian coal port of Dalrymple Bay has more than tripled its coal inventory to around 700,000 tons as floodwaters recede and rail transport resumes in Queensland state's coal mining areas, a port spokesman said. But the port is concerned coal stocks will drop again if mines do not quickly resume production and inventories run out. "Seventy-five per cent of Queensland's mines are currently not operating because of flooding," Queensland state premier Anna Bligh told local television.
MarketWatch:
Fed Borrows White House Method to Judge QE2. Central bank makes its own program, and yardstick. When it comes to evaluating the impact from its plan to purchase $600 billion worth of government bonds, the Federal Reserve seems to be borrowing a trick from the White House. The Fed is buying bonds, and yet the price of bonds has dropped. The yield on the 10-year, one of the maturities the central bank is buying, was at 3.32% Tuesday afternoon, compared to 2.59% ahead of the official announcement of the program and 2.48% before Federal Reserve Chairman Ben Bernanke’s speech outlining the likelihood of such a move in Jackson Hole, Wyo.
Maxine Waters Denounces Bank of America(BAC) - GSE Putback Deal As Taxpayer "Giveaway". While we frequently make fun at Maxine Waters, and often for good reason, in this case the Congressional Democrat is spot on: the member of the House Financial Services Committee has denounced the BofA-GSE settlement as nothing more than a "backdoor bailout" funded by taxpayers, precisely as disclosed yesterday in the exhaustive Forbes piece that is a must read.
New York Times:
After Hibernation, the Office Market Is Waking Up. After a two-year hiatus, the investment market for office buildings has sprung back to life, with some properties commanding prices reminiscent of the boom years. Bidding for well-occupied, high-quality buildings in major cities like New York and Washington has been so fierce that some buyers have been priced out of the market.
No Accountability: Goldman Sachs(GS) Wants You To Invest In Facebook. Facebook wants the public’s money – and their trust – with none of the disclosure and none of the regulatory scrutiny of a public company. Goldman Sachs strategy to raise $1.5 billion for Facebook from “sophisticated investors” and invest another $450 million of their own money is an example of wanton disregard for accountability to the securities markets.
CES: AT&T(T) Offers Internet Connection for Your Pill Bottle. AT&T and Vitality Inc. announced Tuesday at CES that they have teamed up on a new technology that helps patients take their medications regularly by sending reminder calls, weekly e-mail reports and monthly updates to patients and caregivers.
Politico:
States Grapple With Health Care. As House Republicans revive debates of the past with the planned repeal vote on health care reform, their state-level counterparts are quietly pushing into health reform’s future. All states — including those led by Republican governors who campaigned against reform — have implemented at least some of the new law’s provisions. And every state has now received federal funding from the Patient Protection and Affordable Care Act. The action in the states is a sharp contrast to the scene on the Hill Tuesday, where familiar foes rehashed old rhetoric.
USA Today:
Unemployment Rates Rise in Two-Thirds of Metro Areas. Unemployment rates rose in more than two-thirds of the nation's largest metro areas in November, a sharp reversal from the previous month and the most since June. The Labor Department said Tuesday that unemployment rates rose in 258 of the 372 largest cities, fell in 88 and remained the same in 26. That's worse than the previous month, when rates fell in 200 areas and rose in 108.
Reuters:
Goldman's(GS) "Friends" Get Week to Mull Facebook Bet. Goldman Sachs is not giving its multimillionaire clients a lot of time or information to think about investing in a $1.5 billion Facebook private offering. According to a customer who received a letter from Goldman, clients were given just until the end of this week to decide whether they want a piece of the social networking giant.
Mosaic(MOS) Profit, Sales Widely Beat Street.Strong demand for fertilizer driven by high U.S. crop prices helped Mosaic Co's (MOS) quarterly profit and revenue beat Wall Street's expectations, boosting shares in extended trading. With prices for corn and soybeans near multiyear highs, farmers have strong incentive to plant as much as possible, a process requiring more phosphate and potash fertilizer. In a bullish sign for Mosaic, plantings of corn and wheat are expected to rise in 2011, according to a Farm Futures magazine survey released on Tuesday.
Atheros(ATHR) Stock Leaps on Qualcomm(QCOM) Deal Talk. Atheros Communications Inc (ATHR) stock rose 19 percent after a report that Qualcomm Inc (QCOM) is near a deal to buy the company, which would bolster its share of semiconductors in smartphones and tablets. Qualcomm could soon buy Atheros, whose chips are used in PCs, handsets and routers, for around $45 a share, or $3.5 billion, the New York Times reported on Tuesday.
Financial Times:
Oil Price 'Threat to Recovery'. Fatih Birol, chief economist at the International Energy Agency, said oil prices are "entering a dangerous zone" and oil import bills are becoming "a threat to the economic recovery," citing comments by Birol. Import costs for the 34 countries that comprise the OECD increased by $200 billion to $790 billion at the end of 2010, according to the IEA.
Xinhua:
Chinese Premier Li Keqiang reiterated that China may buy more Spanish government bonds to help the country deal with market concerns about its solvency. China has increased its buying activities in Spanish public debt amid European debt concerns, citing Li as saying during his meeting with the country's Second Deputy Prime Minister and Minister of Economy and Finance Elena Salgado.
China may raise benchmark interest rates, increase the reserve requirements for banks, and let the yuan appreciate in the first quarter of this year to ease inflation pressure, Ba Shusong, a researcher at the State Council's Development Research Center, wrote.
Evening Recommendations Citigroup:
Reiterated Buy on (BRO), raised estimates, boosted target to $28.
Reiterated Buy on (ACOM), target $40.
Wedbush:
Rated (AAPL) Outperform, target $405.
Stifel Nicolaus:
Rated (SFSF) Buy, target $35.
Oppenheimer:
Rated (DHR) Outperform, target $56.
Rated (FLR) Outperform, target $84.
Night Trading
Asian equity indices are -.75% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 98.50 -.5 basis point.
The ADP Employment Change for December is estimated to rise to 100K versus 93K in November.
10:00 am EST
The ISM Non-Manufacturing Index for December is estimated to rise to 55.7 versus 55.0 in November.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -1,258,000 barrel decline the prior week. Distillate supplies are estimated to rise by +750,000 barrels versus a +243,000 barrel gain the prior week. Gasoline inventories are expected to rise by +500,000 barrels versus a -2,316,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +.1% gain the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Hoenig speaking, weekly MBA mortgage applications report, Challenger Job Cuts report for Dec., CES and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 82.66 -.14%
European Financial Sector CDS Index 148.54 bps -2.28%
Western Europe Sovereign Debt CDS Index 201.75 bps -2.30%
Emerging Market CDS Index 194.22 -.51%
2-Year Swap Spread 20.0 +1 bp
TED Spread 18.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% +1 bp
Yield Curve 273.0 unch.
China Import Iron Ore Spot $171.0/Metric Tonne +.56%
Citi US Economic Surprise Index +14.90 +.3 point
10-Year TIPS Spread 2.34% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +12 open in Japan
DAX Futures: Indicating +12 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical and Retail long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite more positive economic data, equity strength overseas and less euro sovereign debt angst. On the positive side, Hospital, Drug, Wireless, Telecom, Networking and Utility shares shares are especially strong, rising more than .5%. The 10-year yield is stable despite today's positive economic data. The euro currency continues to trade poorly and gold is falling -2.4%. Oil is near session lows, down -2.6%, despite strong commodity fund inflows and positive global economic data. The China sovereign cds is declining -4.85% to 65.58 bps, the Russia sovereign cds is falling -6.38% to 137.0 bps and the US sovereign cds is declining -3.71% to 39.96 bps. On the negative side, Education, Restaurant, REIT, Construction and Oil Service shares are under meaningful pressure, falling more than 2.0%. Small-caps are underperforming. (IYR) has traded poorly throughout the day. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is still near a record high, despite today's declines. Lumber is falling -1.94% and copper is down -1.54%. Many small-cap stocks that had huge runs last year are under significant pressure today, along with commodities. Many underperforming hedge funds likely increased exposure in these areas during 4Q in an effort to catch the S&P 500. These funds are likely unwinding some of these bets now. Last year's sharp move higher in most commodities in the face of a flat US Dollar Index was somewhat unusual. I suspect that unless the euro currency regains its footing in a meaningful way that performance by commodities is unlikely to be repeated this year. The broad market continues to trade well as it slowly grinds higher and the bears remain unable to gain any traction on potential negative catalysts. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, technical buying, stable long-term rates, less financial sector pessimism, more economic optimism and buyout speculation.
